I work but don't get paid; the insurance company won't insure me.

This is probably right for disability-related benefits. Not to diminish what you do, but lots of valuable people in our community do essential things but don't get paid for it; mothers and volunteers tend to top that list.

One of the factors with this is that insurance companies insure for financial loss; with unpaid occupations, this is hard to quantify.

Working under 20 hours per week

If you work under 20 paid hours per week, insurance companies can quantify some financial risk.

The disability and responsibility placement now gets a bit cloudy for managing the contract and the claim, so they draw the line.

• For some companies, it's higher than 20 hours, it's 25 hours, and for others, it's 30 hours.

What makes this difficult for the insurance company is determining both impairments (to assess the level of disability) and managing rehabilitation.

• For example, you work 12 paid hours per week, but your disability prevents you from working more than 8. While this is a 1/3 loss of work capacity, it's also only 4 hours or 1/2 of a full-time working day.

It's simple, you say. I can't do what I need to do, and a doctor signs it off.

• Yes, but what if the reason for the disability isn't your paid work but your unpaid work?

Let's talk a little more practical.

• In any given week, you have 168 hours, and you want the insurance company to insure you for about 1/8th of that time at 20 paid working hours per week—not much of it, really.
• Ok, take into account sleeping 8 hours per day, 56 hours, and eating 10 1/2, and we're down to about 100 hours per week.
• This is still only 1/5th of the waking time actually working from the time you have available to you, at the most.

So why is this so hard?

The insurance company operates at a distance, and while they try to personalise policies, they can only go so far.

If they get too involved, people tend to get a little annoyed, so it's a balancing act: Get enough information to make a decision but don't upset the applicant to the point they don't put the cover in place.

• Most people find the insurance application process quite invasive, but not so invasive that they don't do it.

How do we ensure the financial loss of someone who is not paid or only works part-time hours?

How do we do this?

Well, here are a couple of ways;

The first;

Use an income protection policy for Class 5 risks. Class 5 risks are those unpaid or part-time I've outlined above.

• The basis of this type of approach is to insure the direct financial costs associated with the person being disabled up to a maximum monthly amount.
• This is generally in the region of $2,500 per month and has to be proven to get the claim paid.

And why we tend not to advise this approach.

• To qualify for a claim, the disabled person must be confined to a bed or hospital under medical supervision for 13 weeks.
• To qualify for an ongoing claim, they have to continue to be confined to bed under medical supervision.

This makes these claims very unlikely. 1 in 6,000,000,000 was the stat an insurance actuary gave me at one point.

Option two;

If you have a mortgage, create more financial certainty by using a mortgage protection policy from a company that allows for the mortgage to be insured for Class 5 risks. The claim criteria are similar to option 1, so not likely for claims either.

A third option;

Is to investigate using dependent care of a close relative option on your spouse's policy.

• If they have to give up work to care for you, then a portion of their income could be replaced by the policy.
• This is dependent on your spouse not working, which may not be a desirable or manageable situation financially.

The fourth;

Often the preferred approach is to put additional Trauma cover in place, over and above what you would need for non-income replacement purposes.

• We generally start this conversation with, ‘What would the financial loss of x being disabled per month?'
• What would happen?
• What would need to be arranged?
• What does all this add up to?
• From here extrapolating this out for five years to get how much more trauma cover is required.

This approach strikes a balance of a significant enough lump sum to do something with while managing the premium payments required. 

• A 5-year lump sum managed well, could provide a level of replacement income for up to 10 years. 

The fifth;

The recommended approach is to utilise a policy like Partners Life's Specific Conditions Cover, other insurers have since come to the party with this style of product.

• It looks and behaves similar to a trauma policy but kicks in for conditions that cause disabilities and work incapacity.

Based on the condition, it pays a multiple of the cover amount, giving you financial support up to the equivalent of $3,000 per month without financial proof.

• For a broken femur, you'd get three times the policy benefit. In rough terms, the payment factors take into account the typical one-month standdown in an income protection claim.
• For example, one of the conditions says condition X pays three times, provided the recovery lasts longer than four months. If it lasts under four months, then one of the other benefit criteria would pay two times.

Staying with option 4 for a second

To be clear, the approach in option four covers major trauma and not just being disabled.

• The test for a claim is higher than normally employed for income protection, as it requires the diagnosis of specific conditions to a certain clinical level to get a claim, but it is more likely than a claim for the first two examples.
• The fifth opition and recommended approach gives both more flexibility of a claim actually being paid along with a reasonable expectation the coverage would work.

Each situation is different, and the number will vary from person to person and situation to situation.

Again Why five years?

This is long enough to provide a buffer to recover initially from the condition and implement any required change without getting too expensive.

• With younger lives, we can go longer, but we find with older lives the budget to approach this aspect of risk planning only goes so far.

Like all advice, it needs to be specific to your situation.

Give us a call to discuss your situation and how we can assist you in finding the right one for you.